Foster Carers: Allowances and Tax Arrangements

Debate between Lord Brady of Altrincham and David Johnston

Monday 15th January 2024 Westminster Hall

[The Parliamentary Under-Secretary of State for Education (David Johnston)]

It is a pleasure, Sir Graham, to serve under your chairmanship.

I start by thanking all those who have signed the petition on this important issue; I also thank the Petitions Committee for scheduling this debate; and I specifically thank the hon. Member for Linlithgow and East Falkirk (Martyn Day) for leading it. I also pay tribute to Fostertalk and the Fostering Network; I think that every Member who has spoken in the debate has cited at least some of their work and we in the Department very much value it too.

Foster carers provide transformational support for children in care. They build relationships, even in a very short period of time, that are loving, long-standing and deeply valued by the children they look after. Without foster carers opening up their homes and lives, we would not have a care system.

Although fostering can be hugely rewarding, it takes hard work, skill and dedication. Anyone who is familiar with the care system deeply values and respects what foster families do every day for our most vulnerable children. That was set out very clearly by the hon. Member for Stretford and Urmston (Andrew Western), who talked about Emma and the fantastic work that she has done for children in her care.

The petition underpinning this debate called on the Government to review and increase the allowances paid to foster carers and to consider tax exemption levels. I should note that at this point that children’s social care is a devolved issue, meaning that the Scottish, Welsh and Northern Irish Governments are responsible for their own policies.

Financial support for foster carers continues to be a particularly important issue as household expenses are still much higher than we would like them to be; indeed, those expenses were especially high when the petition was created in October 2022. Help with the cost of living was cited in helpful research from the Fostering Network, Fostertalk and FosterWiki. Although inflation is now down to 3.9% from 11.1% in October 2022, we are committed to supporting foster carers to deal with rising costs.

In March, we set out our response to the petition. We have increased the minimum fostering allowance by 12.43% and raised qualifying care relief for foster carers, with the latter change representing an average tax cut of £450 per year. Fostertalk, which launched the petition, described our announcement as “fantastic news” and said it was a

“positive development for the foster care community”.

As has been touched on, in order to support foster carers further, from April 2024 we will raise allowances by a further 6.88%, marking two consecutive years of above-inflation increases to foster carer allowances. That means a foster carer in the tax year 2024-25 will earn between £28 and £49 more per week, per child, than they did in the 2022-23 tax year. Over a full year, this will equate to between £1,456 and £2,548 more in allowances. We have also committed to ensuring that qualifying care relief will rise with inflation each year, so foster carers will have more left in their pocket to support the children in their care.

More broadly, there are three key categories of financial support for foster carers. First, there is the national minimum allowance to cover the additional cost of the child, which, as I have mentioned, we have increased at an above-inflation rate for two years running. Secondly, there are fee payments, set locally by councils and fostering agencies to recognise and compensate foster carers for their expertise, skills and development. Thirdly, there are any expenses that have been agreed by the foster service provider.

The national minimum allowance was introduced in 2007 to try and ensure that foster carers are not financially disadvantaged by looking after a child or young person. It is meant to cover the cost of raising an extra child in the home. It should pay for the child’s food, clothing, transport and additional costs, and support children to take up hobbies and have pocket money, as other children would. The rates are set centrally by Government, and we expect all fostering service providers to pay at least the national minimum. Indeed, many local authorities or agencies choose to pay more. As the hon. Member for Linlithgow and East Falkirk touched on, a similar allowance was introduced in Scotland earlier this year.

Every year, the Department for Education works with the Department for Levelling Up, Housing and Communities to review the allowance and consider any changes in inflation and affordability for local government. The allowance operates on a sliding scale, with levels rising as children become older, and with higher rates in parts of the country where costs are typically higher. On the discussion about variation, most of the variation cited by the Fostering Network is the result of councils choosing to pay significantly above the national minimum, as well as the flexibility we give to local authorities to set rates. I will return in a moment to the monitoring that we might do on whether they are paying that.

The 12.43% increase was a record uplift, which represented an increase of between £17 and £30 in allowances per child, per week. The further allowance from April will be an additional £11 to £19 in allowance per child, per week. Beyond the allowance, councils and fostering agencies have the flexibility to provide fee payments for foster carers that reflect their experience, skills and development, as was touched on, or to provide extra support for children with more complex needs. Many fostering service providers supplement that with local offers, including council tax deductions, and discounts for local child-friendly attractions and services. Fostering service providers often provide extra money for taking children on holiday, or to celebrate a birthday or religious festival. Finally, fostering service providers also agree expenses with their foster carers. For example, foster carers may receive travel expenses or be reimbursed for the cost of a school trip.

Moving on to tax arrangements in the second part of the petition, we review tax arrangements for foster carers, ensuring that tax relief is appropriate over time, supporting carers now and in future. Foster carers benefit from qualifying care relief, which means that they do not pay tax on any income below an earnings threshold. In March, we raised that household earnings threshold, as well as the weekly threshold for each looked-after child. For each household, the first £18,140 of income is now tax-free, up from the previous level of £10,000. Additionally, foster carers pay no tax on £375 of income for each child under the age of 11, and no tax on £450 of income for each child over the age of 11. This means that the vast majority of fostering households will now pay no tax on their fostering income, and it simplifies the tax return process that foster carers have to complete. For a fostering household with one fostered child, the first £37,640 of fostering income is tax-free for a child under 11, with the tax-free amount rising to £41,540 for a child over 11. Our recent increase represents a tax cut of £450 a year for fostering households, and we have committed to raising qualifying care relief by the consumer price index measure of inflation every year.

Foster carers can access a range of benefits, and the money that carers receive from fostering is disregarded when calculating means-tested benefits. Fees and allowances are not taken into account as earnings or income, so do not affect the amount of universal credit to which a foster carer may be entitled. Child benefit, or the child element of universal credit, is included in the allowance paid to foster carers from the local authority, but foster carers can claim child benefit for their own birth children. Birth children of foster parents are entitled to the additional 15 hours of funded childcare, as well as being entitled to an extra bedroom for the purposes of housing benefit and universal credit, meaning that they do not lose out following the removal of the spare bedroom subsidy. Foster carers who combine fostering with other employment can get extra funded childcare hours for their foster children, as long as that childcare is consistent with the child’s care plan and agreed with their social worker.

I will briefly touch on the questions raised; if I miss any, I am happy to write to Members with the answers. The allowance is not ringfenced. In December, I wrote to local authorities to remind them of the duty and our expectation that they pay at least the minimum allowance. I share Members’ frustrations where local authorities are not doing that, since we are giving them the money to be able to do so. We will certainly consider collecting more data to ensure that the minimum is being paid. As I say, I wrote to all local authorities in December to reiterate our expectations in this matter.

The 6.88% increase is additional money through the local government finance settlement and the increase in core spending. We are investing £36 million—again, a record amount—to improve recruitment and retention, which a number of hon. Members touched on, and to improve approvals and help more people to undertake this vital role. We are working with more than 60% of local authorities in order to do that.

The shadow Minister, the hon. Member for Feltham and Heston (Seema Malhotra), asked for an update on fostering. It will shortly be the anniversary of the publication of “Stable Homes, Built on Love”, our strategy for transforming social care as a whole, and we will provide an update on what has been happening with our fostering work, the north-east pathfinder, Mockingbird and so on, alongside everything else.

In conclusion, I once again thank the hon. Member for Linlithgow and East Falkirk, and the Petitions Committee generally, for tabling this debate. I am committed to our programme of reform and proud of the Government’s record levels of investment and support for foster carers. I know that all Members present, as well as those not present—as the hon. Gentleman touched on, there is an important statement in the Chamber; otherwise, I feel sure more Members would be present—admire the work that foster carers do for their communities and, most importantly, for the children in their care. It is important we give them all the support we can.

[Sir Graham Brady (in the Chair)]

With time for a brief wind-up, I call Mr Day.